Double Bottom Needs Powerful Surge to Confirm

The prospect of the Fed and Obama administration taking action in coming weeks to reverse the slumping economy is just barely a good enough reason for institutions to defer selling, even do some buying, just in case their action triggers a sharp rebound in the stock market, somewhat like it did a year ago.

The stock market is seeking a comfort level where known and prospective negatives are adequately discounted.

Technically, the major market averages are tracing out a “double bottom” underway during the last two weeks of trading, hopefully capable of supporting a strong rebound. So far, IT IS SUSPECT.

This pattern coincides with Thursday’s meeting of the Fed and central bankers from around the world at Jackson Hole, Wyoming to discuss the global sovereign debt crisis and sagging economies.

That will be followed in early September by the Obama administration’s introduction of new initiatives to revive the economic recovery underway here since late 2009.

Enough to turn the market ?

Barely !

I still think odds favor another leg down below DJIA 10,000 (S&P 500: 1100) with a September/October bottom.

The damage done to the economy and our nation’s financial strength by the 2007 – 2009 Great Recession was so severe, a rapid recovery in our economy is not possible.

Debt built up by consumers prior to the recession gutted their confidence and depleted their resources needed to drive a sustained economic recovery.

Many corporations are flush with cash, but unwilling to part with it to hire and invest in plant and equipment

The US government is tapped out and Congress is paralyzed by partisan political agendas.

HOWEVER:

A game changer would be if a slipping economy would suddenly STOP slipping and gradually gain traction, ergo – NO RECESSION. That, combined with action to goose the economy by the Fed and administration, would solidify the DJIA 10,700 area as a bottom and pave the way for a powerful rally approaching the July highs.

I am not convinced we are headed for a second recession.

A little too early to tell.

George Brooks

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The writer of Brooksie’s Daily Stock Market blog, George Brooks, is not registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk

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